Financial statement analysis1 orignal

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Financial statement analysis1 orignal

  1. 1. FINANCIAL STATEMENT ANALYSIS Presentation Topic: Cash Flow Statement Presented by: Badar Munir 331 Kamran Bangash 308 Moin Ali Baig 328 1
  2. 2. CASH FLOW STATEMENT “A summary of a firms cash receipts and cash payments during a period of time.” “Firm’s cash inflows and outflows during a period of time.” 2
  3. 3. CASH FLOW STATEMENT Cash inflows: The money coming into the business. Cash outflows: The money going out from the business. 3
  4. 4. CASH FLOW STATEMENTCash Outflows Cash Inflows Business 4
  5. 5. IMPORTANCE OF CASH FLOW STATEMENT Internal personnel and external entities will use the statement of cash flows as an analytical tool and used for analysis of firm. A cash flow provides an investor insight into a companys credit worthiness and overall financial health. 5
  6. 6. USES OF CASH FLOW STATEMENT1. It helps the newly formed companies to know their inflow and outflow of cash.2. It helps the investors to judge whether the company is financially sound or not.3. It helps the company to know whether it will be able to cover the payroll and other expenses.4. It helps the lenders to know the company’s ability to repay.5. These statements help to have an accurate analysis of the firm’s ability to meet its current liabilities.6. A cash flow statement is helpful for planning and managing future financial commitments. 6
  7. 7. USERS OF CASH FLOW STATEMENT1. Managers (Internal)2. Potential lenders or creditors3. Investors4. Students5. Govt. 7
  8. 8. CASH FLOW STATEMENT The cash flow statement is partitioned into three segments.1. Operating activities2. Investing activities3. Financing activities 8
  9. 9. Cash Flow Statement Operating Investing Financing activities: activities: activities: 9
  10. 10. Cash Flows from Operating Activities Typical cash inflows Typical cash outflowsWhat are some of the What are some of thetypical cash inflows from typical cash outflows fromoperating activities?` operating activities? Sales of goods Merchandise and services purchases Interest Payments of revenue wages and other expenses Dividend 10 revenue Tax payments
  11. 11. Cash Flows from Investing Activities Typical cash inflows Typical cash outflowsWhat are some of the typical What are some of thecash inflows from investing typical cash outflowsactivities? from investing activities? Sales of fixed assets Purchase of fixed assets Sale of long- term Purchase of investments long-term investments 11
  12. 12. Cash Flows from Financing Activities Typical cash inflows Typical cash outflowsWhat are some of the What are some of thetypical cash inflows from typical cash outflows fromfinancing activities? financing activities? Issuing bonds Paying cash and long-term dividends notes payable Repaying debt Issuing Acquiring preferred and treasury stock 12 common stock
  13. 13. Reporting Cash Flows Increases in Cash Decreases in Cash Operating Operating (receipts from (payments for revenues) expenses) Investing Investing (receipts from sales of (payments for acquiring noncurrent assets) noncurrent assets) Financing Financing (receipts from issuing (payments for treasury stock, 13equity and debt securities) dividends, and redemption of debt securities)
  14. 14. PREPARING A STATEMENT OF CASH FLOWThere are two methods of preparing the statement of cash flows1. Indirect method2. Direct method The indirect method derives cash flows from accrual basis statements. The direct method determines cash flows directly for each source or use of cash. 14
  15. 15. The Statement of Cash Flows: Indirect Method Accrual Basis Statements Cash Flow Statement Income Statement Operating activities: items & Changes in Adjust net income for accruals Current Assets and and non-cash charges to get Current Liabilities cash flows Investing activities:Balance Sheet: Changes Inflows from sale of assets and In Non-Current Assets Outflows from purchases of assetsBalance Sheet: Changes in Financing activities: Inflows and outflows Non-Current Liabilities from loan and equity and Equity transactions
  16. 16. Format of the Statement of Cash Flows: Indirect MethodCash flows from operating activities: Net Income $ XXX Adjustments (to arrive at cash flow from operations) $ XX (List of individual inflows and outflows) Net cash flow from operating activities $ XXXCash flows from investing activities: (List of individual inflows and outflows)$ XX Net cash flow from investing activities $ XXXCash flows from financing activities: (List of individual inflows and outflows)$ XX Net cash flow from financing activities $ XXX
  17. 17. 17
  18. 18. Indirect Method: Special Items Note the following adjustments to net income in deriving operating cash flow: Loss on sale of assets is added to net income Gain on sale of assets is deducted from net income Discount on bonds payable (as amortized) is added to net income Premium on bonds payable (as amortized) is deducted from net income
  19. 19. Format of the Statement of Cash Flows: Direct MethodCash flows from operating activities: Cash receipts (individually): Inflows $ XXX Cash payments to suppliers (separately): outflows ($ XXX) Net cash flow from operating activities $ XXXCash flows from investing activities: (List of individual inflows and outflows)$ XX Net cash flow from investing activities $ XXXCash flows from financing activities: (List of individual inflows and outflows)$ XX Net cash flow from financing activities $ XXX
  20. 20. Comparative Balance Sheet Shiner CorporationAssets Dec 31, 1996 Dec 31, 1995Cash $37,000 $49,000Accounts Receivable $26,000 $36,000Prepaid Expenses $6,000 $0Land $70,000 $0Building $200,000 $0Accumulated $11,000 $189,000 $0DepreciationEquipment $68,000 $0Accumulated $10,000 $58,000 $0 20DepreciationTotal Assets $386,000 $85,000
  21. 21. Liabilities and StockholderEquityAccounts Payable $40,000 $5,000Bonds Payable $150,000 $0Common Stock $60,000 $0Retained Earnings $136,000 $20,000Total Liabilities and $386,000 $85,000Stockholder Equity 21
  22. 22. Income Statement Shiner CorporationRevenue $492,000Operating Expenses $269,000Depreciation $21,000 $290,000Income before Income Taxes $202,000Income Tax Expense $68,000 22Net Income $134,000
  23. 23. Statement of Cash FlowsCash Flow from Operating ActivitiesNet Income $134,000Adjustments to reconcile net income to net cashAccts Receivable decrease $10,000Prepaid Expense increase ($6,000)Accts Payable Increase $35,000Depreciation $21,000 $60,000Net cash provided from Operating Activities $194,000Investing ActivitiesLand Purchase ($70,000)Building Purchase ($200,000)Equipment Purchase ($68,000) ($338,000)Financing ActivitiesDividend payment to shareholders ($18,000)Issuance of Bonds Payable $150,000 $132,000Net Decrease in Cash ($12,000) 23Cash Jan 1, 1996 $49,000Cash Dec 31, 1996 $37,000

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